Can ChatGPT disrupt the mortgage industry?

ChatGPT is the hottest consumer application in technology today. Does it have a future in mortgage lending?

The trendy artificial intelligence chatbot from Microsoft-backed firm OpenAI debuted in November and is the fastest-growing consumer application ever, according to a Reuters report. The free chatbot can answer queries at lightning speed, write extensive creative prompts, pass academic and professional exams and generate and repair computer codes. 

Mortgage lenders are notoriously slow to adopt new tech, with less than half of industry leaders in an Arizent survey last summer indicating they were actively engaging with AI and related machine learning solutions. While reasons for their apprehension vary, leaders in the field aren't counting out advancements like ChatGPT.

"If I think about the applications, I'm very excited about the future," said George Brady, chief technology officer at loanDepot. "I'm not trying to be a downer on that. I just think it's going to be a crawl before we can walk, before we can run."

ChatGPT's search, communication and problem-solving capabilities can be transformative additions to a home lender's tech arsenal, experts said. However, the regulations for mortgages make tasks like automated underwriting difficult to achieve, leaving the chatbot out of more complicated industry processes, for now.

Tech giants in recent weeks have scrambled to address the application's popularity, with Microsoft announcing a  $10 billion investment into OpenAI and Google promoting a rival AI chatbot in the coming weeks. 

Some mortgage players are reticent to discuss their current use of artificial intelligence, but the tech has found a purpose with some common mortgage tasks. AI is effectively used for document handling and recognition, fraud detection and in internal systems like chatbots, in which a loan officer can ask about the status of a loan.

Some loan officers have already used ChatGPT to create promotional posts on LinkedIn. The chatbot, when asked, suggests it's not useful for making lending decisions with no capacity to process loan applications and creditworthiness. Instead, it said it can provide general information about terms, processes and regulations. 

But ChatGPT's natural language processing is so quick and smooth, it shows promise for enhanced customer relations, said Peter-Jan Van de Venn, vice president of digital banking at Massachusetts-based bank consulting firm Mobiquity.

"Generally, chatbots are there for first-line questions only," he said. "But if you talk to ChatGPT you can imagine that also for second line and third line type of questions, that might be able to help client servicing and might even go far enough to provide you with a few questions for personalized mortgage advice."

ChatGPT's knowledge is limited through 2021 and it can't provide information such as current mortgage rates. Tech giants are mulling its search engine capabilities, however, and its power to eliminate rabbit holes and distill insights could eventually prove useful to prospective borrowers, Brady said. 

A homebuyer could ask ChatGPT what cities they could afford to live in Southern California where homes are less than $500,000 and receive a more detailed, direct response than an initial Google or Bing search, Brady suggested. While the search benefits are attractive, they may not be ready to replace a human.

"When you look at the complexity, there are a number of mortgage products and so it takes a very sophisticated person to kind of navigate that," said Brady. "Which is really where the loan officer comes in and why the loan officer is so important in the transaction."

LoanDepot in its mello platform, for example, has an automated system that helps pre-clear conditions for underwriters to make it easier to get loans processed. ChatGPT, or a future iteration of the chatbot, could improve that automation, Brady said. 

ChatGPT's coding prowess can be a reasonable use of the software today, said Andrew Badstubner, chief information officer at Tennessee-based First Community Mortgage. In a demonstration, he asked ChatGPT to write a Python code to check a mortgage application against a section of the Fannie Mae Selling Guide. The chatbot, after a few queries, produced the correct code, but also included unnecessary additions.

"That's what's exciting about it, you can see there's a nugget there," he said. "It's going to be useful. It's just not quite there yet."

The chatbot doesn't provide a link to its application programming interfaces, or APIs, which is a roadblock for corporate use, Badstubner said. Developers have to go to other programs which can cooperate with the APIs of their own proprietary softwares, like Loan Origination Systems. Companies may also be wary of sharing their intellectual property with ChatGPT, and OpenAI advises against sharing sensitive information.

Financial institutions also need to be aware of any bias in ChatGPT, Van de Venn said. The program has been accused of bias in responses about race, sex and politics, and users have manipulated prompts to circumvent ChatGPT's aversion to producing harmful text. Bias is already an issue in home appraisals and financial regulators are wary of AI in lending decision-making. 

"ChatGPT may have biases present in its training data, but OpenAI is working to reduce them for neutral and fair outputs," said ChatGPT, when asked for a short answer about whether it contains bias.

Despite technological and potential ethical hurdles, experts remain excited about ChatGPT's powerful, reliable and speedy responses as a benefit for the industry. Many banks already use Microsoft products, and ChatGPT's integration could be a matter of weeks or months, Van de Venn suggested. Fintechs, he said, could also take a proactive approach before Microsoft makes ChatGPT a standard technology within its suite.

OpenAI recently launched a pilot subscription plan for ChatGPT, which offers increased access during peak use times, faster response times and priority access to new features. The free version of the chatbot is still available, and smaller players can still realize the benefits of the software, Brady said. 

"I just think it's going to be monetized to the larger players," he said. "So I think the cloud providers will be the ones that will be providing the service of the smaller-to-medium sized businesses to take advantage of."

In the meantime, ChatGPT itself suggests its future in the mortgage industry remains to be seen.

"Regardless, the development of AI technology in the financial sector is a rapidly evolving area," said ChatGPT, "and it will be interesting to see how ChatGPT and other AI models are used in the future to improve and streamline mortgage lending operations."